Outside Counsel as Director: The Pros and Potential Pitfalls of Dual Service

Business Lawyer

Volumn 53, Issue 2, 1997, Pages 479-505

  Harris, Micalyn S ^{a,b,c,d,e,f,g,h}   Valihura, Karen L ^i,j,k,l,m  

^a Winpro Inc

^b UNIVERSITY OF CHICAGO   (United States)

^c Legal Business Ethics Committee

^d ABA's Ctr for Prof Committee

^e ABA BNA Editorial Board

^f ABA's Sect Bus Law Fed Reg S

^g PACE UNIVERSITY   (United States)

^h New York Stock Exchange Inc   (United States)

ⁱ UNIVERSITY OF PENNSYLVANIA   (United States)

^j Skadden Arps Slate Meagher F ^*  (United States)

^k ABA's Section of Business Law ^*

^l Litigation Section

^m Delaware State Bar Association   (United States)

more..

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EID: 0642273124     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (165)

1. We note that the ABA has established a Task Force on the Independent Lawyer (Task Force), which is drafting a report on the issues presented by lawyers serving on the boards of directors of their corporate clients (Task Force Report Draft). A draft of that report was published in connection with the program, The Lawyer As Director Of A Client (presented at the ABA's 1997 Annual Meeting).
2. See Mark Winwood, On & Off The Record, NAT'L L.J., Feb. 23, 1981, at 2; see also CHARLES W. WOLFRAM, MODERN LEGAL ETHICS, § 13.7, at 739 (1986) (observing that "roughly half of the nation's largest corporations have outside counsel sitting on their boards").
3. See Mark Winwood, On & Off The Record, NAT'L L.J., Feb. 23, 1981, at 2; see also CHARLES W. WOLFRAM, MODERN LEGAL ETHICS, § 13.7, at 739 (1986) (observing that "roughly half of the nation's largest corporations have outside counsel sitting on their boards").
4. Gail D. Cox, For Lawyers Lure of the Boardroom Has Its Perils; Serving on a Client's Board Can Lead to Conflicts that Could Get an Attorney Fired or Sued. Will the ABA Ban the Role? NAT'L L.J., July 1, 1996, at B1.
5. See Task Force Report Draft, supra note 1.
6. See ABA Comm'n on Professionalism, Report of the Commission on Professionalism to the Board of Governors and the House of Delegates of the American Bar Association, 112 F.R.D. 243, 280-81 (1986).
7. Id. at 281 & n.114 (citing Comments to Rule 1.7 of the MODEL RULES OF PROFESSIONAL CONDUCT; Lefkowitz, The Attorney-Client Relationship and the Corporation, 26 Rec. A.B. City N.Y. 697 (1971)).
8. See Task Force Report Draft, supra note 1.
9. Dennis J. Block et al., Lawyers Serving on the Boards of Directors of Clients: A Survey of the Problems, INSIGHTS, Apr. 1993, at 3; see also Monroe Freedman, You CAN Do It, But You Shouldn't, AM. LAW., Dec. 1992, at 43; Martin Riger, The Lawyer-Director - "A Vexing Problem," 33 BUS. LAW. 2381 (1978).
10. Dennis J. Block et al., Lawyers Serving on the Boards of Directors of Clients: A Survey of the Problems, INSIGHTS, Apr. 1993, at 3; see also Monroe Freedman, You CAN Do It, But You Shouldn't, AM. LAW., Dec. 1992, at 43; Martin Riger, The Lawyer-Director - "A Vexing Problem," 33 BUS. LAW. 2381 (1978).
11. Dennis J. Block et al., Lawyers Serving on the Boards of Directors of Clients: A Survey of the Problems, INSIGHTS, Apr. 1993, at 3; see also Monroe Freedman, You CAN Do It, But You Shouldn't, AM. LAW., Dec. 1992, at 43; Martin Riger, The Lawyer-Director - "A Vexing Problem," 33 BUS. LAW. 2381 (1978).
12. WOLFRAM, supra note 2, at 739.
13. Block et al., supra note 8, at 8.
14. Craig C. Albert, The Lawyer-Director: An Oxymoron?, 9 GEO. J. LEGAL ETHICS 413, 416 (1996).
15. See Escort v. BarChris Constr. Corp., 283 F. Supp. 643, 690 (S.D.N.Y 1968).
16. See Robert H. Mundheim, Should Code of Professional Responsibility Forbid Lawyers to Serve on Boards of Corporations for Which They Act as Counsel, 33 BUS. LAW. 1507, 1508 (1978).
17. Id.
18. WOLFRAM, supra note 2, at 740.
19. See Kelway v. Kelway, 21 Eng. Rep. 47 (Ch. 1580).
20. Radiant Burners v. American Gas Ass'n, 320 F.2d 314, 324 (7th Cir. 1963).
21. 8 JOHN HENRY WIGMORE, EVIDENCE IN TRIALS AT COMMON LAW §§ 2290-92 (John T. McNaughton rev., Little, Brown and Co. 1961 & Supp. 1991).
22. Radiant Burners, 320 F.2d at 318-19, 322-23 (quoting 8 WIGMORE, supra note 18, §§ 2285, 2290-92).
23. Id. at 318-19.
24. Id. at 319.
25. Id. at 323.
26. 89 F. Supp. 357 (D. Mass. 1950).
27. Id. at 358-59; see also Micalyn Harris, Positioning For Litigation: Corporate Confidentiality and the Attorney-Client Privilege, ABA Section of Bus. Law Spring Meeting (Mar. 24, 1995) (on file with The Business Lawyer, University of Maryland School of Law).
28. See, e.g., Upjohn Co. v. United States, 449 U.S. 383, 389 (1981); Diversified Indus. v. Meredith, 572 F.2d 596, 609 (8th Cir. 1977).
29. United Shoe, 89 F. Supp. at 360-61.
30. Id. at 360.
31. Id.
32. Id. at 360-61.
33. Id. at 361.
34. In re Robinson, 125 N.Y.S. 193, 193 (App. Div. 1910).
35. Id. at 195.
36. Id. at 198-99.
37. Id. at 199.
38. 121 F. Supp. 792 (D. Del. 1954).
39. Id.
40. Id. at 794.
41. Id. at 793-94.
42. Id. at 794.
43. Id.
44. Id. at 795.
45. 52 F. Supp. 751 (D. Del. 1943).
46. Id. at 753-54.
47. Id. at 753.
48. Id.
49. See American Cyanamid Co. v. Hercules Powder Co., 211 F. Supp. 85, 89-90 (D. Del. 1962); Zenith Radio Corp., 121 F. Supp. at 794.
50. 66 F.R.D. 206 (1974).
51. Id. at 212.
52. United States v. United Shoe Machinery Corp., 89 E Supp. 357, 361 (D. Mass. 1950).
53. 1992 WL 76956 (Del. Ch. Apr. 15, 1992).
54. Id. at *2.
55. Id.
56. 449 U.S. 383 (1981).
57. Id. at 392.
58. Id. at 394.
59. 329 U.S. 495 (1947).
60. Id. at 508.
61. Id. at 508-10.
62. Id. at 511.
63. Id. at 513.
64. Id. at 511.
65. See In re Sealed Case, 856 F.2d 268, 273 (D.C. Cir. 1988) (holding that more than a showing that the party seeking the information has "substantial need" of the materials and is unable "without undue hardship" to obtain substantially equivalent information by other means may be required).
66. See Hickman, 329 U.S. at 495; Diversified Indus. v. Meredith, 572 F.2d 596 (8th Cir. 1997).
67. [1995 Binder] Fed. Sec. L. Rep. (CCH) ¶ 98,857, at 93,145 (Del. Ch. July 18, 1995).
68. Id. at 93,146.
69. Id. at 93,151.
70. Id. at 93,152.
71. Id.
72. 332 F. Supp. 544 (E.D.N.Y. 1971).
73. Id. at 576.
74. Id. at 575-76.
75. Committee on Corporate Laws, Corporate Director's Guidebook, 33 BUS. LAW. 1591 (1978).
76. Id. at 1620.
77. WOLFRAM, supra note 2, at 739.
78. Id.
79. See, e.g., Dominic Bencivenga, Should Attorneys Serve on Corporate Boards?, 3 L. Firm Partnership & Benefits Rep. (Leader) No. 7, at 9 (Aug. 1997).
80. MODEL RULES OF PROFESSIONAL CONDUCT Rule 3.7 (1998). Model Rule 3.7 provides: "[a] lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness. . . ." Id.
81. Cottonwood Estates, Inc. v. Paradise Builders, Inc., 624 P.2d 296 (Ariz. 1981) (en banc).
82. Id. at 298.
83. Id.
84. Id. at 302-03.
85. See, e.g., Harrison v. Keystone Coca-Cola Bottling Co., 428 E Supp. 149 (M.D. Pa. 1977).
86. See generally Karen L. Valihura & Robert J. Valihura, Jr., A Delaware Perspective on Advancing Directors' and Officers' Litigation Expenses, 12 Bank & Corp. Governance Rep. (Computer L. Rep.) No. 1, at 66 (Mar. 1994) (on file with The Business Lawyer, University of Maryland School of Law).
87. See Mary E. McCutcheon, Professional Liability Insurance Issues for Lawyers Sitting on Corporate Boards, THE BRIEF, Winter 1996, at 8.
88. Thomas L. Browne, Lawyers Who Act as Other than Lawyers Enter a Danger Zone, CHI. LAW., Nov. 1994, at 11.
89. 343 F. Supp. 605 (M.D.N.C. 1972).
90. Id. at 606.
91. Id. at 608.
92. Id. at 610.
93. Continental Cas. Co. v. Burton, 795 F.2d 1187 (4th Cir. 1986).
94. Id. at 1189.
95. Id. at 1194.
96. Id. at 1190.
97. Id.
98. 97 B.R. 293 (E.D. La. 1988), aff'd, 907 F.2d 546 (5th Cir. 1990).
99. 97 B.R. 293 (E.D. La. 1988), aff'd, 907 F.2d 546 (5th Cir. 1990).
100. Id. at 300.
101. Mmahat, 907 F.2d at 554.
102. Id. at 552.
103. Id. at 552-53.
104. 580 A.2d 100 (Del. Ch. 1990).
105. Id. at 107.
106. Id. at 108.
107. Id. at 102-03.
108. Id. at 108 (citations omitted).
109. Id.
110. 68 F.R.D. 361 (D. Del. 1975).
111. Id. at 368-69.
112. Id. at 368.
113. Id. at 369.
114. 1992 WL 97220 (Del. Ch. May 5, 1992).
115. Id. at *1.
116. Id.
117. Id. at *2.
118. Id.
119. Id. at *1.
120. Id.
121. Id. at *2.
122. See, e.g., Steven Kalish, What Does "In-Confidence" Mean?, BUS. LAW TODAY, Mar./ Apr. 1997, at 19.
123. Albert, supra note 11, at 430.
124. See MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.13 cmt. (1997).
125. 15 PA. CONS. STAT. ANN. § 1712(a) (West 1995).
126. Id. § 1715(a).
127. Norfolk S. Corp. v. Conrail, Inc., No. 96-CV-7167, transcript at 64-2 (E.D. Pa. Nov. 19, 1996) (bench ruling) (on file with The Business Lawyer, University of Maryland School of Law).
128. See WOLFRAM, supra note 2, § 13.7.4, at 739; see also Geoffrey C. Hazard, Jr., Is It Smart to Sit on a Client's Board?, NAT'L L.J., Jan. 23, 1989, at 13.
129. MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.13(e) (1998).
130. See Hazard, supra note 124, at 13; see also Freedman, supra note 8, at 43 (commenting that the Kutak Commission, which drafted the Model Rules "declined even to consider a rule that [Freedman] had proposed in 1980 that a lawyer shall not serve as an officer or director of a publicly held company that is a client of the lawyer, of the lawyer's partners or associates, or of any firm or attorney with whom the lawyer has an of-counsel relationship").
131. MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.7 cmt. (1997).
132. Id.
133. Freedman, supra note 8, at 43.
134. 15 U.S.C. § 77 (1994).
135. Escott v. BarChris Constr. Corp., 283 F. Supp. 643 (S.D.N.Y. 1968).
136. Id. at 689-92.
137. Id.
138. Id. at 689-90.
139. 15 U.S.C. § 78.
140. 357 F. Supp. 255 (D. Or. 1972).
141. 15 U.S.C. § 78j.
142. Blakely, 357 F.Supp. at 266 (quoting SEC v. Frank, 388 F.2d 486, 489 (2d Cir. 1968)).
143. 15 U.S.C. § 78t.
144. 711 F. Supp. 1264 (D.N.J. 1989).
145. Id. at 1295.
146. 15 U.S.C. § 77o.
147. 15 U.S.C. § 78o(a).
148. Albert, supra note 11, at 467.
149. Id. at 468.
150. Rochez Bros., Inc. v. Rhoades, 527 F.2d 880, 884 (3d Cir. 1975).
151. Blau v. Lehman, 173 F. Supp. 590 (S.D.N.Y. 1959), aff'd, 286 F.2d 786 (2d Cir. 1960), aff'd, 368 U.S. 403 (1962).
152. Blau, 286 F.2d at 792.
153. Blau, 368 U.S. at 414.
154. Id.
155. Blau, 173 F. Supp. at 592-93.
156. Blau, 368 U.S. at 410.
157. Id.
158. 406 F.2d 260 (2d Cir. 1969).
159. 15 U.S.C. § 78p (1994).
160. Feder, 406 F.2d at 269.
161. See James H. Cheek, III & Howard H. Lamar, III, Lawyers as Directors of Clients: Conflicts of Interest, Potential Liability and Other Pitfalls, 712 PRAC. L. INST. 461, 497-98 (Nov. 1990); see also Sam Harris, The Case for the Lawyer-Director, in Lawyers as Directors, 30 BUS. LAW. 41, 58-62 (1975).
162. See James H. Cheek, III & Howard H. Lamar, III, Lawyers as Directors of Clients: Conflicts of Interest, Potential Liability and Other Pitfalls, 712 PRAC. L. INST. 461, 497-98 (Nov. 1990); see also Sam Harris, The Case for the Lawyer-Director, in Lawyers as Directors, 30 BUS. LAW. 41, 58-62 (1975).
163. See, e.g., United States v. Arthur Young & Co., 465 U.S. 805 (1984); Baxter Travenol Lab. v. Lemay, 89 F.R.D. 410 (S.D. Ohio 1981).
164. When, however, many documents are delivered, the right to demand additional privileged documents may be denied as unjust. See Champion Int'l Corp. v. International Paper, 486 F. Supp. 1328, 1333 (N.D. Ga. 1980).
165. See, e.g., In re Subpoena Duces Tecum, 738 F.2d 1367 (D.C. Cir. 1984). As a practical matter, in connection with investigations by government agencies, when cooperating with the investigation, a corporation should, before turning over documents, obtain a commitment from the government agency that it will maintain the confidentiality of the documents provided, and a signed stipulation to the effect that by providing documents voluntarily, the corporation does not waive the attorney-client or work-product privilege. If such an agreement cannot be obtained, it is appropriate for the corporation to reevaluate the advisability of cooperating with the government agency and, in the absence of such an agreement and stipulation, the corporation must move forward with the understanding that it is vulnerable to disclosing information which it might otherwise not be required to disclose.